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German businesses continue to underperform in August: PMI

BERLIN (Reuters) - Germany's private sector continued to struggle in August as a manufacturing recession dragged on and activity in the services sector eased slightly, a survey showed on Thursday, suggesting Europe's largest economy is heading for a recession.

Markit's flash composite Purchasing Managers' Index (PMI), which tracks the manufacturing and services sectors that together account for more than two-thirds of the economy, edged up to 51.4 from 50.9 the previous month.

This beat the consensus forecast of analysts surveyed by Reuters, who had expected a weakening to 50.5.

Still, Phil Smith from IHS Markit said the data was not strong enough to dispel the threat of another minor contraction in gross domestic product in the third quarter.

The German economy contracted 0.1% in the April-June period due to a plunge in exports, and sentiment indicators are suggesting hardly any improvement for the three months from July to September.

"Germany remains a two-speed economy, with ongoing growth of services just about compensating for the sustained weakness in manufacturing," Smith said.

The survey showed that overall job creation in the private sector slipped to a five-year low while business expectations about future output turned negative for the first time since late 2014.

(The story adds dropped word 'to' in headline.)

(Reporting by Michael Nienaber; Editing by Hugh Lawson)

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